Companies Moving Jobs To U.S. From China To Avoid Inflation

MILWAUKEE (Scott Malone) - On a recent morning at Master Lock's 90-year-old factory in Milwaukee, a cluster of machinery was whirring, every 2 seconds spitting out one of the combination locks used by American high schoolers as the company readied for the back-to-school rush.

The seven-day-a-week, three-shift-per-day whirlwind of activity marked a change from two years ago, when the machine normally ran for just a few hours a day because the unit of Fortune Brands Inc was ordering more padlocks from suppliers in China instead of making them.

Why move production from the world's low-cost workshop back to a unionized U.S. factory where wages are six times higher than in China? Efficiency: The machine in Milwaukee is about 30 times as fast as the Chinese factories the company had been buying from, more than making up for the difference in wages.

"I can manufacture combination locks in Milwaukee for less of a cost than I can in China," said Bob Rice, a senior vice president at the largest U.S. padlock manufacturer.

The factory has added about 78 workers over the past two years, boosting its workforce to 440.

That is a small bit of good news for the long-suffering U.S. manufacturing sector, which shed about 2 million jobs, or some 14.6 percent of its employees, in the last recession. It has not recovered since and now employs 11.7 million people, down 34,000 from the recession's official end in June 2009.

Master Lock is not alone. General Electric Co and Boeing Co are also part of the small group of U.S. companies that are boosting production at their U.S. factories.

A variety of factors are driving the shift, including rising wages in parts of Asia, surging fuel prices and the complexity of transporting goods across the Pacific. (Reuters Insider show: "Made in USA" Making Comeback as U.S. Manufacturers Expand: link.reuters.com/nuf42s )

ECONOMIC IRONY

"What you're starting to see is the economics shifting more into the United States' favor regarding sourcing from the United States versus sourcing from a low-cost country," said Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI, a Washington trade group.

There is an element of irony here. The United States' sluggish economic recovery, coming at a time when emerging economies including China and India are enjoying brisk growth, is helping its manufacturers to close the cost gap on their foreign rivals.

China's inflation rate hit 5.5 percent in May, well ahead of the United States' 3.6 percent headline rate. With Chinese wages rising at 15 to 20 percent per year, the labor costs of manufacturing in the two countries could pull even by 2015, a Boston Consulting Group study predicted in May.

Rising oil prices, which drive up the cost of shipping goods by boat or plane, are also eating in to China's edge.

Automation also helps tilt the balance toward the United States. Bruce Crass, the Master Lock plant's general manager, estimated that his plant -- where the average worker oversees the operation of six high-speed machines -- produces 24,000 locks a day with about one-sixth the number of workers needed by the company's Chinese suppliers and rivals.

Master Lock today makes about 55 percent of its padlocks in North America -- in Milwaukee and at a satellite location in Nogales, Mexico -- with the rest made in China. That is down from a 50-50 split two years ago.

To be sure, these companies are the exception in the U.S. economy, where businesses from Apple Inc to Nike Inc focus on design and marketing, leaving production to independent contractors.

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[FLAMMENWURFER]

02:05 PM on 07/05/2011

I almost forgot to say that I do support Master lock for their decision to operate the U.S. factory at higher capacity ... They do need to close that Nogales border town factory for good though !

[FLAMMENWURFER]

02:01 PM on 07/05/2011

Until I see a story that says all "So called " American Corporations are required to manufacture their product on Continental U.S. soil then maybe I will be excited about changes in our economy !
Mexico or any other foreign country need to be banned as outsources for manufacturing ! Those companies who threaten to leave here ... Good riddence ... We don,t want or need them . Open borders and a world economy are not the way of the future at least not for us ...

[Huffer-10]

08:48 PM on 07/07/2011

While I agree with you, I also think if we take all of our manufacturing away from Mexico we will have to put a revolving door on the US/Mexican border to handle to additional incoming workers. That of course cost us the jobs plus all the social amenities they get for free.

[davidmward60us]

10:32 AM on 07/05/2011

This article highlights many weaknesses to the to the Asian economy but most important is the replacement of workers with machines that can produce more with better quality. This article shows that Master Locks success was made with some smart investrment and retooling along with retraining of workers. We can compete with other nations that have a much lower cost of living therefore lower wages.

[Kai-HK]

04:13 AM on 06/30/2011

Excellent News. Free Markets and Free Exchnage have been able to do what no amount of protectionism has be able to do. Another reason to get the governement out of the protection racket.

[Chris Hargens]

10:05 AM on 07/01/2011

What do you mean by "no amount of protectionism"? Are you suggesting that the U.S. government has been aggressively imposing tariffs, giving ultimatums to China regarding its currency manipulation, stripping tax breaks from companies that off-shore jobs, etc. Give me some significant examples -- not minor/short-term tariffs here or there -- of U.S. protectionism.

[Karma2U]

11:32 PM on 06/29/2011

The Chinese only want American (and all other foreigners) there long enough to learn something that benefits China's regime. Then they quickly kick the foreigners to the curb and install their own people.

Go to any Chinese based business anywhere and you can count the foreign employees on one hand.

[factsaboutchina]

02:50 AM on 06/30/2011

That's business.

[Chris Hargens]

10:22 AM on 07/01/2011

That's right. Unfortunately, the heads of U.S. companies are primarily concerned with short-term profits -- think bonuses and rising stock. Hence their willingness to give away technological know-how and share valuable business practices. In contrast, the Chinese think and plan long term -- five-year plans, with companies and sectors coordinating their actions to firmly establish a foothold in target industries. "Gee, we gave them all our proprietary recipes for baking the tastiest bread. We set up a bakery and shared with them all our inside knowledge on how to run the business. Now they've set up their own bakeries, and they're outselling us."

[nomoredead]

09:30 PM on 06/29/2011

http://abcnews.go.com/WN/MadeInAmerica/

We all should try to buy american made items..

[bgofca]

02:44 AM on 06/30/2011

unfortunately, many items we use all of the time are no longer made in the us. I don't believe there is a company that makes tv's in the us anymore; computers, electronic equipment?

[LeeCalif]

07:37 PM on 06/29/2011

This is Reuters/ Fox network propaganda.

Inflation is occurring in China, as well.

[Geoff Abram]

12:17 AM on 06/30/2011

Read the article BEFORE you leave a comment next time. better yet, read the title.

[factsaboutchina]

02:49 AM on 06/30/2011

You clearly did not read the article. They are leaving China, due to the increase in inflation.

How many HuffPo posters do what LeeCalif did: See an article, assume, scribble down drivel and hit Post Comment without ever reading the article?

[Steven Barall]

12:13 PM on 06/29/2011

The point of running a business is to find the path of least resistance to the money. They have faster lock making machines here than their jobber in China has but wait until some other lock factory here in the US closes down and that Chinese manufacturer buys up all of those lock making machines and ships them back to China. Bye bye Milwaukee. And what about their factory in Mexico? You do know that Mexico is a foreign country? Do you???

[Insanity rules]

09:49 AM on 06/29/2011

When the tainted painted toys from China were discovered there was a review of "what went wrong?" The most interesting fact to me was "there were no American managers on the scene" in the China factories. Why? No one wanted to live there. That should have been a sign to the management that moving jobs to China wasn't a good step if you can't control the manufacturing processes. However the bean counters made the decisions.

[cyclone70]

11:24 AM on 06/29/2011

In the few instances of reshoring I am aware of, lack of real time access to the shop floor by engineering and management and product quality are the most cited reasons to come back

[blueken]

08:51 AM on 06/29/2011

The real story here is automation, and it will affect the world. I have been working in IT and automation for 30 years, and I can tell you, the day is coming when there will be very little need for labor in manufacturing. What kind of a world will we have then? That's up to us.

[Jason Vineyard]

09:32 AM on 06/29/2011

That means we will need a resourced based economy! We can all live like neo-native americans :)

[blueken]

09:42 AM on 06/29/2011

If that is what we choose. There are many ways to affect change. Dollar voteing, voteing with your feet, voteing at the polls. We will get what we choose, and not chooseing will not bring a good outcome. Who owns the minerals under our feet? Who owns the sun and the wind? Who owns the water that we drink?

[cyclone70]

11:33 AM on 06/29/2011

I have been in and around the industrial automation industry for most of my adult life. I have heard these predictions for years, yet never seem to come to pass. In fact there has been very little change in industrial automation over the past decade. robots, CNC, PLC, Lasers all are pretty much the same as they were with only incremental improvemsnt since the industries peak in the late 1990s. If this were so, one would think the automation industry would be booming. but its not and has been in a prolonged slump, never fully recovering from the 01 recession. Plus, complex automated equipment requires higher skilled workers to program, maintain, repair, tool, and operate. higher skill means higher dollars thus making these postions vulnerable to offshoring. Automation requires high volume repetitive tasks to justify its costs, making the bean counters decide that its cheaper and more profitable to send to a low cost labor country instead of investing millions in automation

[blueken]

01:35 PM on 06/29/2011

Well, I started married life as a carpenter. It would take three men a week to frame a moderate sized house. When we got nail guns, we did the job in 2 days. A shingle roof would take 2 full days for 3 men. It now is done in the morning. I too worked with CNC's. How many manually operated veritical turret milling machines can one CNC replace? Your right, not much has changed in technology but we have gotten better at using it. Look at productivity.

[BBackSoon]

02:02 PM on 06/29/2011

I agree, I work in IT for a major manufacturer. We have plants in various parts of the world and I am more than familiar with Low Cost Countries and what the true benefits are.

Quality is never as bad as we would like to hear and the major savings is always payroll. As soon as wages get just a little closer, the true costs of doing business in these far flung countries will be reexamined.

I know our China Plants work almost autonomous of us, but part of this is because they are on the other side of the world. And once you add in Language barriers, time differences and shipping costs the savings more marginal. And it is expensive to keep a Finished Goods Pipeline full of 5 or 6 weeks of product, and that pipeline is not very flexible.

The problem is how much of the knowledge has been shared? How many machines have been shipped? How many suppliers are out of business? How many of the Old Timers are gone?

[artist-53]

08:34 AM on 06/29/2011

i mentioned a while ago that US companies would be moving back to the States due to rising demands of workers in China. From, shorter work week, health care, wages, etc....along with the already present social,culture differences.

But before they move back there would be a push to decrease wages,get rid of Unions, gut health care benefits,....and they've also changed child labor laws in some States recently.

This was not rocket science at all, but rather , anyone could see the writing on the wall.

So now you know why the extreme governors are pushing thru laws that make it seem as if we are going back to the Pullman days.

[cyclone70]

07:34 AM on 06/29/2011

this is a nice little anecdote, and lets hope the trend continues. but this is a mere drop in the bucket to all the mfg jobs lost offshore under our failed economic and trade regime

[tball]

06:59 AM on 06/29/2011

"There is an element of irony here. The United States' sluggish economic recovery, coming at a time when emerging economies including China and India are enjoying brisk growth, is helping its manufacturers to close the cost gap on their foreign rivals."

There is nothing "ironic" about this. The Corporate-Political Complex has been working overtime dismantling every workers right it can in anticipation of this very issue. Their agenda has been, and continues to be, an all out effort to force American workers to accept Third World wages and working conditions to these very ends - bringing their businesses back to the USA. Unfortunately, the profound ignorance of the Americans most exploited and hurt by this agenda - fueled by a ceaseless barrage of misinformation and blatant lies - leads them to voting for and supporting the very people who are hurting them. Kind of a national "Stockholm Syndrome." We have to fight back.

[dianecafe]

06:34 AM on 06/29/2011

" A variety of factors are driving the shift"-- the article failed to mention much of the water has become so polluted it is not useable in some manufacturing processes. China is now starting to implement programs in the billions of dollars to clean up the water which is sure to pass on to the manufacturers. Workers are also demanding safe working conditions.

I guess the large corporations can no longer exploit China for profit.

[ILoveGreatDanes]

06:08 AM on 06/29/2011

It is true. American products are better quality than Chinese any day. Many times however, I've found it's almost impossible to find items that aren't made in China. When I can, though, I pay more and buy American. Not only do I help save American jobs, it saves me effort because the quality is better, so I don't have to return it for a replacement when it breaks or wears out prematurely. An old adage I've found useful in these circumstances: "the cheap comes out expensive."

[cyclone70]

07:42 AM on 06/29/2011

Yep the higher quality US made product is a better value since it will last longer

A chinese Mr Coffee might only last a year, whereas the old US made ones lasted several. And yet they cost about the same as they did when they were made in Cleveland.

Hand tools, chinese onese if they even work at all, only last a few uses before they are trash, US made tools got passed on from grandfathers to grandsons

Jeans. A decent pair of jeans when made in the US ran around 20 to25 bucks. Outsourced jeans still selll for the same amount, but are thinner material, poorer stitching and don't last nearly as long

I needed a pull chain light fixture in the laundry room. the original came with the house and lasted 40 years. I could only find chinese ones after searching several stores. I have now had to replace the chinese one at least once a year now.

and whats up with toilet seats - US made ones lasted years, chinese ones also have to be replaced frequently

it used to be about the best value and quality for the money, now its all about the cheapest possible in every sense of the word

[lschw3]

10:03 AM on 07/05/2011

The Germans having a saying I am too poor to buy cheap items.

[zbb]

01:09 PM on 06/29/2011

Remember the Graco strollers that caused four deaths? It is not the Chinese want to export cheap trash. It is Walmart who comes to China and says "Make me strollers, I pay $10 for each."As long as Walmart goes on paying $10 for Made in China strollers, there will be more and more Graco incidents.

However, Graco incidents would never take place in China because Chinese parents who can only afford $10 strollers do not buy them, they would rather hold their babies in arms. This is what we say ancient Chinese wisdom.

[cyclone70]

02:54 PM on 06/29/2011

And when Graco made those strollers in the US they were subject to consumer safety regulations and if a death or injury occured the plaintiff could go after the company legally

Good luck trying to go after a chinese company for unsafe products